Lockhart: Don't Read Too Much Into Fed's Bond Buying

The Federal Reserve's recent decision to invest in longer-term Treasuries represents a "small, tactical change" and does not a change of strategy on securing the economic recovery, Atlanta Fed President Dennis Lockhart said Friday.

Lockhart said that economists have read too much into the FOMC's August decision to reinvest principal received on mortgage-backed securities or maturing agency debt by purchasing longer-term Treasury securities.

"I think the decision has been over-interpreted in some quarters. These interpretations, along with alarmist commentary about deflation and a double-dip recession, are feeding an exaggerated sense of foreboding," Lockhart said.

With the financial system on the mend and credit conditions easing, Lockhart expects the economy will look and feel better before the end of the year.

"As the economy continues to grow, even at a modest pace, and adverse shocks don't materialize, negative sentiment will dissipate," he predicted.

The move to buy Treasuries was a precautionary action to offset a "temporary downshift" for the economy.

The bond purchasing represents a "small tactical change designed to preserve the level of liquidity provided to the system....but I do not view it as a fundamental change of outlook or strategy," Lockhart said.

"I do not believe this change necessarily heralds the beginning of a period of further expansion of the Fed's balance sheet," he added.

Copyright(c) 2010 News.com, Inc. All Rights Reserved

Published: 2010-09-03 15:44:00 UTC+00 1 year, 5 months, 1 day, 10 hours, 46 min. ago

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